Are Publisher Advances Truly Critical?

The argument against Amazon seems to rest on the proposition that if trad-pubs aren't awarded excess returns, over and above the actual free-market value of their products, then there will be no money to pay authors to write “serious literature,” irreparably harming our culture and society.

This is really a very dense proposition with all kinds of unstated and unanalyzed assumptions behind it. It would take a lengthy and complex essay to thoroughly deconstruct all these notions, and few would have the patience to read it. But it’s worthwhile to quickly review some of the main issues.

1. How much “serious literature” do advances truly subsidize?

There isn't any comprehensive public accounting but from various sources we get a general impression of where advances actually go. A large portion is paid to popular novelists like James Patterson and John Grisham and popular nonfiction authors like Edward Klein. Another big slice of the advance pie is served to entertainment and sports celebrities who put their names to various books that are supposedly nonfiction. And prominent politicians often get remarkably large advances for memoirs and ruminations. Calling any of this “serious literature” is stretching the term to the point of rupture.

To be sure, there are truly serious writers of nonfiction, such as Doris Kearns Goodwin, who get good advances — but only if they’re working on “bankable” books that are almost sure to have wide appeal and bring in big sales figures. This is not a big slice of the pie, however.

And there are superb, highly-honored authors who have a great deal of difficulty in getting advances large enough to support research on serious topics that aren’t guaranteed of a large market. In recent years the “midlist” author has been relegated to a sweatshop ghetto, where $30,000 counts as a good advance, regardless of the literary merit of the work.

So overall, publisher advances do fund some genuinely serious literature — but the bulk of advances go for books that don’t qualify under any reasonable definition of the words, and many books of high merit cannot attract a significant advance because sales prospects don’t seem to be very bright.

2. Why do the publishers have to act as investment banks for books anyway?

The publishers rig the game in such a way that in most cases authors can turn only to them for advance funding, even for books that clearly have major sales potential. They do this for bestseller-potential titles by setting royalty rates so low that there’s little chance that the nominal royalties will ever catch up with the advance. Thus if a bestselling author financed her book from another source she couldn’t make enough from royalties on sales to pay a good return on the investment; the publisher would simply appropriate most of the value of the book. (Big-name authors could push back on royalty terms, but most find it simpler and safer just to go for big advances.)

For midlist titles the publishers simply exercise their market power to avoid promoting them enough to make for good sales prospects. Thus their royalties usually aren’t enough to pay off even their meager advances. Again the publisher is assured of a large share of the value because his costs are kept low. The value of any particular midlist book may be low, but it does mount up when a lot of books are involved.

This is not of course what we hear from Foer or other attempts to justify trad-pub without actually understanding much about the business. It’s only the benign, benevolent publishers who would advance authors money against unwritten books, they claim. This is remarkable nonsense. Players in finance long ago learned how to make good profits by investing money in risky propositions. If the publishers ever paid economic royalty rates there would be no shortage of sources of advance funding for books that had even modest prospects for success. And the financial system would certainly do a better and more efficient job of it.

Regardless of royalty rates of course, speculators are not going to be attracted to the book that’s socially important but has little prospect of sales. But publishers very rarely finance these either, except on the whim of someone in a position of power. Authors of serious but not popular books have to look to foundations, their day-job employers, or their own resources. It’s hard to see a real alternative for such books.

3. Is Amazon threatening the excess profits publishers need?

Trad-pubs need to collect substantial economic rents — excess profits over and above their costs of operations and capital — so they can bestow generous largess on worthy authors. Or so they and their apologists would have us to believe. (Most of them no doubt believe it themselves, as they don’t seem to be very deeply knowledgeable or analytical.)

This isn’t a place for a thorough analysis, but analogies can be illuminating. How about an analogy with the Great Satan itself, Amazon?

Like most diversified corporations, Amazon doesn’t break out results by division or line of business in its reports to the SEC. The overall outlines of how the business operates are clear, however (and very different from what most people imagine). As is usually the case for “growth companies,” Amazon’s objective is to grow sustainable free cash flow from operations (not accounting profit) as rapidly as possible and to do so it reinvests most of its free cash flow in expanding operations. (The idea that Amazon has to cut its growth so it can report profits and pay dividends is market lunacy; as long as it can keep growing its stock will rise. Only if investors lose confidence in its growth prospects will the market for its shares soften.)

How does Amazon generate large cash flow? Not by pricing high, but by buying cheap and selling large volumes. The publishers, however, believe it serves their objectives to charge high unit prices. Amazon thinks the publishers lose more through reductions in the number of books sold than they gain by jacking up the price per book — and they know that Amazon does. In the end Amazon believes that both they and the publishers will make more by selling more books at lower price per book, and they have data from their immense volume of book sales to back this up. Data-schmata, the publishers say: they simply want higher net prices per book.

That’s all there is to the dispute, at base. Amazon isn’t trying to cut publisher profits, but they want to change the strategy for getting them. They claim (no doubt sincerely) that this will be at least equally good for the publishers — as well as better for Amazon. Make the pie bigger, they say, and there will be enough for all. And in the process customers will be better off (unless they get psychic income from paying more rather than less for a book, as some no doubt do), which is also part of Amazon’s strategy.

The publishers no doubt have their reasons for resisting Amazon’s embrace, but we have to guess what they are because instead of explaining to us they’ve been encouraging the likes of Authors United and David Streitfeld to put out confused and confusing red herrings. One thing we do know, however, is that it doesn’t really have anything to do with protecting the wellsprings of serious literature.

(Disclosures: I have a business economics and management background, but not in publishing. I’ve published in the past with W.W. Norton but in recent years have self-published on Amazon’s CreateSpace and KDP platforms. I have no beneficial interests in any firm engaged in publishing or book retailing.)

43 Comments on Are Publisher Advances Truly Critical?

  1. Amazon is growing its business by roughly 25% year-over-year.
    The last time they paused their growth to demonstrate their underlying profitability, they raked in a billion over one year. Having made their point, they resumed their growth-focused strategy.

    • I’m skeptical about the idea of having to prove their profitability; anyone who invests in growth stocks knows enough to look at free cash flow rather than earnings — or had better if he wants to avoid losing his shirt.

  2. It happened around the turn of the century.
    Lots of pressure for them to show a profit even with a billion on hand.
    http://www.businessweek.com/2000/00_28/b3689001.htm

    Amusing, in hindsight, since ten years later they made a billion profit in one year.
    Once their current expansion “ends”, they could be making a billion (or more) a quarter.

  3. The “serious literature” thing always makes me laugh. Ask any editor at a commercial publishing house to point to just ONE book which he and everyone else knew wouldn’t sell out (earn back the advance), and it was published anyway… because the publisher wanted to publish “serious literature.”

    Who the heck at a publishing house would assess whether a book was “serious literature” or not anyway? Presumably an editor…

    But if any editor tried to convince his employer’s Sales and Marketing people (because everyone at a publishing house has to AGREE to publish a book) that they should publish a book because it was “literature” he’d find himself looking for a new job on the same day.

    University presses and the like do publish serious books, but they expect to make money on them too. No publisher is a charity. NO publisher ever publishes stuff they think no one will buy. That’s complete fantasy.

    It’s never happened.

    Never will happen.

    Publishers nickel and dime their midlist authors (or they used to, until midlist authors ran off to Amazon) to support the bets they place on celebrity books and their brand name authors.

    All the waffle about “supporting culture” that publishers and their big-name authors bleat about is fantasy. And they know it. But it sounds good in their PR.

    No one believes it. Least of all Amazon. Amazon’s execs aren’t silly.

    • Well said, Angela. I would only add that publishers are willing to do the occasional little book that doesn’t sell, but only if they have a couple big books that do sell to pay for it. Knopf’s list is like this, and Little, Brown’s. Of course, those little books tend to be by people who’ll get serious literary reviews and maybe prizes, which adds to the house’s prestige, a currency in its own right, and its competitiveness. A lot of top-selling genre authors like to be on lists with top literary authors because it makes them feel better about what their own work.

      I would also dispute that there even is such a thing as “literature” any more, that being more a product of marketing and academic interest than any cultural interest, but that’s a different discussion.

  4. And the bottom of the story is where the problem is. Who controls pricing. Should the producer of a work that understand their costs and sales control the pricing or should the retailer that knows nothing of that. Sure, the big players can make a ton of money off the new trickle-down economics of a penny a click, but not smaller organizations nor most authors. Amazon has not actually shown lower prices are made up by a larger volume–they cherry-picked one figure (actually, they probably made it up) and only for ebooks without an analysis for a typical book schedule including hardcover and paperback releases. Being an independent author, I cannot afford a retailer dictating my prices. I need that control.

    Literature simply means written works. I believe there are plenty of written works in the world. The question is whether being a writer is a real economic choice for a career. As the inequity of those at the top and those below increase, then it becomes harder to have a diverse voice in literature (written works). Inexpensive books are good, but if prices don’t offer any returns on production, then you have a problem. When the sale of a thousand copies of a book are pretty good, how do you actually have a chance of making a living at $2.99?

    • If you’re an author selling directly through Amazon (as I do) you have very wide latitude to call your own pricing. The only real limit is that Amazon will give you a better cut if you price below $10. And if you use their KDP Pricing Support service they’ll give you their statistical estimate of the price elasticity of demand for your book. I’ve done some experimentation with pricing on my titles that suggests that their estimates are broadly correct. In my cases, the recommended optimal pricing is a lot closer to $9.99 than $2.99. For my “The Plan That Broke the World,” KDP Pricing Support recommends $9.99, but does not indicate that I’d make more by pricing above $10, even if I could get 70%. In 7 months on the market I’ve made more than I could have gotten from a trad-pub, and probably sold as many copies. Great literature it’s not, but it’s a well-researched and workmanlike book with some new ideas, and I certainly have no complaints about Amazon’s handling of it.

      The post by the lawyer Max Kennerly that Nate has cited, http://www.litigationandtrial.com/2014/07/articles/attorney/amazon-monopoly/, thoroughly rubbishes the notion that Amazon somehow controls the prices that trad-pubs can charge. That Amazon bargains hard no one doubts, but they play by the legal rules and lack the power to drive prices down artificially.

      Making a living as an author has always been difficult. It naturally tends to be a winner-take-all market, and the mega-publishers have driven it more in that direction. Amazon is actually mitigating this to some extent by providing a real marketplace for self-published books. Freedom of the press is proverbially for those who own the press, but Amazon has decided to share theirs on reasonably generous terms. The notion that the wonderful and benevolent mega-pubs will balm all the authors’ hurts if Amazon will stop tormenting them is pure fantasy. Like most big corporations their objective is to maximize insider compensation in the near term, not to benefit authors or literature.

      • +++ If you’re an author selling directly through Amazon (as I do) you have very wide latitude to call your own pricing. The only real limit is that Amazon will give you a better cut if you price below $10. +++

        I’m sorry, but that is an utterly ridiculous claim. If you want to price your book above $9.99 or below $2.99, they grab 65% of your revenue to use a download service.

        And since Amazon does not pay anyone except its imprint authors a dime in royalties despite its very misleading statement that what you’re receiving is a “royalty” despite the fact that all that has happened is your bottom line has just been lightened by either 30% or 65%, your pricing is very limited. Because handing over 65 points to a reseller in book publishing is financial insanity.

        +++ The post by the lawyer Max Kennerly that Nate has cited, http://www.litigationandtrial.com/2014/07/articles/attorney/amazon-monopoly/, thoroughly rubbishes the notion that Amazon somehow controls the prices that trad-pubs can charge. That Amazon bargains hard no one doubts, but they play by the legal rules and lack the power to drive prices down artificially. +++

        First, his opinion on whether Amazon is functioning as a monopsony is one lawyer’s opinion. Other lawyers have other opinions.

        Second, Amazon is indeed trying to drive prices down artificially, as it itself has implicitly stated via its pricing codex strategy:

        http://www.rule-set.com/ricks-blog/october-06th-2014

        I’m happy you’ve done well with Amazon and hope you continue to do so. But misstating the facts of what Amazon does and why it does it doesn’t help understand what’s going on. Amazon is a big company and the publishers are big companies and they have their own motivations for their actions. Neither is the hero.

        Rick Chapman

        • “Because handing over 65 points to a reseller in book publishing is financial insanity.”

          Yet, handling over 90% is acceptable? Or 75% for EBooks?

          Based on standard 10% royalty from the BPHs. And 25% royalties for eBooks.

          • I will help relieve your puzzlement, though I’d take you more seriously if you had the courage to use your real name and not hide behind snark. I find snarks to normally be trolls and not very brave.

            I will answer your question one time, but ignore you afterwards because I like talking to braver types of people.

            When you have finished uploading your book to Amazon, precisely what types of services have you received from them? Editing? Copyediting? Direct marketing? Any form of PR? ANYTHING?

            No. You receive nothing. They function as a downloading service. You can enlist in KDP, and you pay for it. Won’t go into much detail as I describe how MDF functions in channels here:

            http://www.rule-set.com/blog

            You may argue about the value of those services. There is nothing to discuss with Amazon because nothing is what you receive. They simply take from your bottom line.

            +++ Or 75% for EBooks? +++

            E-book royalties are in flux, as Harper Collins just demonstrated. And discuss what I think is a fair split between future publishers and writers as the current model is being disrupted and collapsing.

            But I won’t talk further about this with you as I don’t want to spend much time bending over and conversing with the snark under the bed.

            Rick Chapman

          • I probably should have jumped in sooner, but :

            Knock it off, Rick.

            You’ve been pretty confrontational from the beginning, but this in particular is not acceptable. Puzzled might not be using a real name but it is a consistent pseudonym which is fine by me.

            Also, your nitpicking over things like Bill’s pricing remark is not OK; we all knew what he meant, and when it comes to pricing non fiction his statement that ” Amazon will give you a better cut if you price below $10″ is not, as you put it, “an utterly ridiculous claim”.

            His statement was at worst half wrong, and since hardly anyone is going to price a non fiction book below $3 so it’s not a big deal that he left out the lower price boundary.

          • “When you have finished uploading your book to Amazon, precisely what types of services have you received from them? Editing? Copyediting? Direct marketing? Any form of PR? ANYTHING?”

            How really cares what services the authors are getting. In theory, the publishers provide all kinds of services. What we know is that they have been cutting back on those services. It used to be that finding a typo in a physical book was a rare and wonderful thing. These days, not finding a typo in a physical book is a rare and wonderful thing.

            When you sign with a publisher, you expect these services. The web is littered with signed authors anguishing that they haven’t received these services, and their books are languishing.

            When you sign with Amazon, you know you’re not getting any of these services. And have to provide them yourselves. And Amazon is compensating you for this by raising your cut, and lowering to obstacles to publishing.

            I’m more concerned with the services that the buyers are getting now.

            I recently bought a Tom Clancy ebook. This is a mature book, one of his early books.

            It had obviously been scanned, but not even proofread. There were over a thousand errors in the book. There were whole pages that obviously had a problem being scanned.

            The pro-publisher advocates like to bring up all the good things that the publishers do. Unfortunately, these are all the good things the publishers USED to do, and now only do for their best authors (who can afford to provide these services for themselves anyways).

    • Here’s the reverse of your question, why should the publisher, most of whom have very little if any knowledge or experience with retail pricing direct to consumers, get to dictate to a retailer at what prices to sell? Retailers to whom that is stock and trade. I think very few people would argue Amazon has reams more data, far in excess of anything publishers might have, about optimizing retail prices to maximize sales/profits. Also, Amazon runs a publishing imprint all its own. It’s not reasonable to suggest that they have no knowledge of the costs involved in doing so when they themselves actively do so. I can’t help you if you want to argue that publishers are better suited or have more expertise than Amazon on retail pricing decisions now, in 2014. That’s not even a discussion. Basically, a supplier having final control over a retailer’s pricing is a restraint of trade against the retailer. What is the legal basis for allowing suppliers to restrain trade against retailers? They know their costs better? So what? Amazon knows it’s costs better, too. Yet they should have the most crucial aspect of their business (to-customer pricing decisions) taken away because publishers don’t like how they use it? Don’t do business with them if they’re so onerous. But no major publisher is going to do that because they want a cut of the sales channels that Amazon’s built. That’s the bottom line. The publishers want what Amazon has but they don’t want to pay to play. They want it on their preferred terms but don’t have the negotiating power to get it. Business, and life in general, doesn’t work that way.

      • +++ Here’s the reverse of your question, why should the publisher, most of whom have very little if any knowledge or experience with retail pricing direct to consumers, get to dictate to a retailer at what prices to sell? +++

        And here’s the reverse of the reverse. Why should Amazon be allowed to put me in a seven dollar pricing box that makes it impossible for niche and specialty authors to use their service as handing over 65 points to a reseller is ruinous?

        And why should Amazon be allowed to establish a pricing codex?

        Amazonium Codexorum

        http://www.rule-set.com/ricks-blog/october-06th-2014

        • Amazon owns the store. If their terms don’t allow you to do business the way you prefer, go elsewhere that does. Or sell them yourself directly. Or alter your plans to fit what they offer. Very few of us can just walk in to a retailer and say “I want access to the customer base you’ve cultivated but I’m only interested in you doing it my way” and not get laughed at. Amazon has gone to great lengths and expense to build what it has. They are under no obligation to give others access to that under terms they don’t agree with. I’m not saying they’re right. I’d actually like to see a sliding scale where royalties drop gradually as prices go up instead of a $10 cliff. But I have neither the leverage nor the right to expect them to accommodate what I want. I choose to accomodate what I do to fit how I can best use what they offer. You can’t really go to a company that built what it did on low prices, service and efficiency and expect them to now selectively discard those basic tenets because you want access to what they’ve built in a manner that only suits your particular business model.

          • +++ Amazon owns the store. If their terms don’t allow you to do business the way you prefer, go elsewhere that does. Or sell them yourself directly. +++

            Well, I’m happy that at least we now know their pricing flexibility isn’t that great.

            And I’m sorry, but that’s not what Amazon has said. They’ve said:

            +++ Is it Amazon’s position that all e-books should be $9.99 or less? No, we accept that there will be legitimate reasons for a small number of specialized titles to be above $9.99. +++

            Right up there on their website. So, nothing personal, but I’m not really interested in your opinions on Amazon policy unless you can ensure me you speak for Amazon. I’m interested in Amazon’s stated policies.

            And this is clearly a pricing fixing policy. Amazon has stated it believes it should have the right for “legitimate” books to be priced more than $9.99.

            So, your statement about how Amazon is not attempting to control prices is clearly wrong. Amazon has already stated it will attempt to do.

            So, have you read Amazonium Codexorum?

            http://www.rule-set.com/ricks-blog/october-06th-2014

            Are you prepared to speculate on how the codex will be assembled, enforced, and the “legitimate” reasons for a $75 billion dollar corporation to attempt to price rig the E-book market?

            +++ Basically, a supplier having final control over a retailer’s pricing is a restraint of trade against the retailer. What is the legal basis for allowing suppliers to restrain trade against retailers? +++

            And you are completely dead wrong. Agency pricing is not illegal in book publishing nor is its equivalent in other industries. Collusion IS a violation of civil law.

            If the reseller does not wish to buy under agency, it does not have to. But Amazon doesn’t want to lose access to the first rank writers who are affiliated with the publishers.

            Rick Chapman

  5. A silly post that makes traditional publishers look absurd. Are there not more sensible arguments to support / attack traditional publishers? How about how Amazon pays it staff as compared to how trad-pub pays it staff (though cronyism and family contacts / privilege in the industry should be taken into account). Just saying. This article is locking trad-pubs in stocks and inviting the blood-thirsty hordes to throw rotten veg at them. Is that your goal? I just think as a blogger you could be more creative. By all means toss this stuff out. But I wonder if it’s possible to invite more balanced debate. I don’t know. Are trad-pubs are as out-rightly shite as your regulars seem to think? Does their model have no value over Amazon at all?

    • “A silly post that makes traditional publishers look absurd”

      The traditional publishers are going this quite well on their own, thank you very much.

      “How about how Amazon pays it staff as compared to how trad-pub pays it staff (though cronyism and family contacts / privilege in the industry should be taken into account). ”

      Is this supposed to be a pro or anti TradPub statement? Amazon pays their staff normally, I suppose. Or is Amazon deficient for not employing cronyism, family contracts/privilege in their remuneration?

  6. As a follow up, it just seems that the majority of comments in whatever medium on the subject are strictly divided between those who are in trad-pub and benefit from it (conflict of interest and BS), and those who are outside it, and therefore support Amazon (sour grapes? And perhaps quite rightly so if the industry is riddled with insider connections). In truth, neither Amazon or trad-pub have the backs of writers or readers. They have their own backs.

    I would like to see a more nuanced discussion of real facts rather than public hangings.

    • What’s silly exactly? The advance structure is one of, if not the most frequently cited points used to attack Amazon. And it’s being misrepresented as existing to support writers when, in the overwhelming majority of cases, advances in that range go to people who either don’t need it to live off of or are working on something that’s a solid gold lock to produce sales. He also makes a great point about low royalties making the return on that advance intentionally difficult if not impossible to achieve for most writers. Even a $100k advance paid out in several increments over a two or three year period doesn’t really constitute a living wage. Remember, that advance is pretax, so knock at least 25% off the top. Take another 15% off for the agent. That leaves 20k a year over 3 years, give or take. Maybe you can live on that if you’re single and live somewhere with reasonable rents, baked beans and mac & cheese are your dietary staples and you don’t turn your heat up very high in the winter. But it’s far from a sustaining wage. And what percentage of writers are even getting that much? Advances work much like a draw against commission for a sales person (you get a predetermined chunk of money and any sales commissions are backed out to repay it.) The key difference, though, is that nothing is stopping a sales person from working hard to generate more sales to meet and exceed those figures. Writers, on the other hand, are almost entirely dependent on the publisher to market, sell, price their work to generate sales. They have very little capacity (and even less freedom) to do so on their own. In my opinion, this makes an advance a bad long-term choice generally for writers unless it’s a sizable chunk of money. Anything under six figures will probably end up costing you more in the long run than you’ll gain in the upfront payout. It certainly isn’t enough to live solely on. Especially if your ability to increase sales is restricted coupled with low royalties that require higher volume sales to reach.

  7. What if our best literature requires personal suffering under no deadlines, which author advances help remove? Washing dishes all night certainly helps motivate any writer, plus provides excellent life observation opportunities out in the back alleys. This is a good article related to the topic from the Nobel judge Horace Engdahl.

    http://www.theguardian.com/books/2014/oct/07/creative-writing-killing-western-literature-nobel-judge-horace-engdahl

  8. I could write all day on the many things in both this article and the comments that demonstrate a serious lack of understanding for both the situation at hand, trad publishing and Amazon’s issues. But I’ll sum it up this way:

    1. Publishers invest in important books, both fiction and nonfiction, that they believe deserve to see the light of day. Yes, it makes a difference. Using star authors and pop success stories as examples of frivolous advance payments reduces a complex system to a cartoon.
    2. Please stop saying the Amazon/trad fight is over pricing, or about greedy publishers. The moment you make that argument you mark yourself as someone who hasn’t done the homework. The fight is over profit margins; Amazon is squeezing money out of the middle from all vendors. Prices are a PR talking point, nothing else. Amazon is working hard to weaken all the middlemen and build a vertical empire that allows it total control over the content-to-consumer pipeline.
    3. If advances are silly, then why does Amazon offer them to authors in its own imprints?
    4. You’ve never earned a living as a novelist, have you?

  9. I just find it ironic that a profit margin of 10% (for publishing) is considered to be excessive……

  10. Nicely laid out, William. Since you say your background isn’t in publishing, allow me to extrapolate on this point:

    Data-schmata, the publishers say: they simply want higher net prices per book.

    Actually, publishers love it when Amazon discounts paper books. Amazon is actually subsidizing print sales, and publishers are making out like bandits.

    But publishers hate it when Amazon discounts ebooks. That’s what the current dispute with Hachette is about.

    I go into detail here:

    http://jakonrath.blogspot.com/2014/08/amazon-vs-hachette.html

    In short, the Big 5 publishers have an oligopoly on paper distribution. This cartel has suited them very well for decades. But if readers switch to ebooks (which is being hastened by Amazon discounting ebooks more than paper books) then publishers lose their livelihood.

    Publishers have admitted to wanting to slow the adoption of ebooks, while simultaneously admitting ebooks give them much higher profit margins. They’re looking at the long game. If everyone buys ebooks, publishers won’t have any market power anymore. Authors go to publishers to get their paper books into brick and mortar stores. When that paper market collapses, publishers will become unnecessary middlemen who take an unreasonably large cut of the profits.

    Why would any author sign a contract with a publisher for ebooks only, when any author can self-publish and reach just as many readers on their own?

    That’s why publishers illegally colluded to fix prices and the DOJ brought suit against them. Unless publishers stop ebook growth, they’re obsolete.

    • +++ But publishers hate it when Amazon discounts ebooks. That’s what the current dispute with Hachette is about.

      I go into detail here:

      http://jakonrath.blogspot.com/2014/08/amazon-vs-hachette.html +++

      And your post is not accurate. The big publishers sell E-books at wholesale all the time to Amazon. All you have to do is spend five minutes looking through their listings. Stephen King’s “The Shining” is up for $1.99 on Amazon. Clearly, it is being sold via the wholesale mode.

      The big publishers want to maximize their revenues via agency pricing for well known and high selling writers during the launch period. Anyone who studied the earlier Macmillan vs. Amazon fight understands that.

      Amazon’s seven dollar pricing box is reserved for the indies. The little guys. Amazon seems quite happy to sell Mr. Mercedes for $11.99.

      So much for that silly piece of Amazon Vogon poetry proclaiming the wonders of $9.99.

      Rick Chapman

      • “Selling” them ebooks wholesale is not accurate. They’re licensing them under a wholesale – type arrangement at best. They can’t sell Amazon ebooks because there’s no transfer of title. If they were “selling” them, they wouldn’t even have the one rickety sawed off leg they’re standing on to argue for supplier controlled retail pricing. It would be a blatantly obvious violation of first sale.

  11. +++ If they were “selling” them, they wouldn’t even have the one rickety sawed off leg they’re standing on to argue for supplier controlled retail pricing. +++

    And again, this statement is dead wrong.

    Rick Chapman

    • Dead wrong how? If they were truly selling them ebooks, Hachette’s title would transfer to Amazon and they would have precisely zero grounds to claim any such ability on pricing after that. But ebooks are licensed not sold. Otherwise all those people who bought those ebooks from Amazon would have the exact same right to resale which they clearly do not. Hachette would have two ways to claim such a right. A negotiated agreement with Amazon that’s not the result of collusion or some sort of claim based on the fact that Hachette retains title to the ebooks and can attach terms as such to the license. I don’t think either is viable at the moment.

  12. +++ Why would any author sign a contract with a publisher for ebooks only, when any author can self-publish and reach just as many readers on their own?

    That’s why publishers illegally colluded to fix prices and the DOJ brought suit against them. Unless publishers stop ebook growth, they’re obsolete. +++

    You know, while there are some valid points here, I think it would be helpful if you discussed in greater detail what’s involved in marketing and selling your books all by yourself. The amount of time, money, and energy that needs to spent.

    Because uploading your book to Amazon, Smashwords, et al does exactly squat for sales. Amazon doesn’t do squat for you in return for that rather high 30%.

    Rick Chapman

  13. +++ Dead wrong how? +++

    Dead wrong in the “how” that “agency,” “map,” and other forms of pricing wherein a supplier insists the reseller sell a product at a certain price in return for receiving that product is not illegal. This has been widely litigated in many industries in the US and is not a matter of controversy.

    +++If they were truly selling them ebooks, Hachette’s title would transfer to Amazon and they would have precisely zero grounds to claim any such ability on pricing after that +++

    This is gibberish and off the point. I have an extended series at this link that describes the fight between Amazon and the publishers.

    http://www.rule-set.com/blog

    Doesn’t ankle grab for either side and is accurate.

    Rick Chapman

    • I didn’t say they were illegal. I said the results of which constitute a restraint of trade and it does. Amazon (or any retailer) can willfully agree to those restraints in a fairly negotiated deal that isn’t the result of collusion and it would be legal. Doesn’t change the basic fact that the nature of the agreement restrains Amazon’s pricing ability. And how is it off the point? You said Hachette is selling ebooks wholesale to Amazon and they can’t be. It’s not possible in the present conditions. They may be using a wholesale – based licensing model but they are not selling them ebooks. The difference between selling and licensing has profound impacts on the rights transferred (or not) to buyers or licensees. By the way, per an earlier reply, what exactly are you arguing for? I never said Amazon wasn’t trying to control prices. My entire argument has been defending Amazon’s right to do just that in their own store. And you’re the one who said Amazon’s seven dollar box, as you put it, makes it impossible for specialized and niche publishers to use their service because of the $10 cutoff. But then later you specifically pointed to Amazon saying they recognize that some specialized books should be priced above that point. Is your problem that they want to be the one who gets to decide which specialized books get those prices in their store? Because it doesn’t really say that. I can assume they’d probably want that but it’s not explicit in their statement. Besides, it’s still their store. Amazon has the same right to try to maximize their returns that me, you, Hachette and everyone else does. They just have more leverage at the moment than most of us to do so.

  14. +++ I didn’t say they were illegal. I said the results of which constitute a restraint of trade and it does. +++

    Dead wrong again. “Restraint of trade” is term of legal art. “Agency” pricing is not regarded by the courts as “restraint of trade.”

    Companies and people are not normally required by laws to provide goods and services to a reseller or channel and channels are not normally required by laws to purchase goods and services from suppliers. This is is matter of contract negotiations.

    This is not a disputable point. You need to study this issue and, if you want to maintain credibility with those who have, not misstate basic facts.

    +++ And how is it off the point? You said Hachette is selling ebooks wholesale to Amazon and they can’t be. It’s not possible in the present conditions. +++

    I’m sorry, but the above is just completely factually wrong. Most of the E-books Amazon publishes from publishers are bought under wholesale. It’s INDIES who live under a modified version of agency pricing. I’m afraid you have no idea of how publishing works. Part I of this series:

    http://www.rule-set.com/ricks-blog/what-hugh-howey-wont-talk-about-but-should-the-book-channel-part-v-of-several-parts-the-resellers-and-agency-vs-wholesale-pricing-and-mdf-oh-my

    Provides a basic analysis of how traditional publishing works. Read the entire series and it will bring you up to basic speed.

    Now, Amazon has made some interesting claims about the terms under which you buy a book from them. I’m not even going to go near that issue. It’s not decided law, it hasn’t been litigated, no one is sure about how the whole issue will shake out and it will be years, if not decades, before it is.

    But you need to be up to speed on the basics before even attempting to enter that den of snakes.

    And by the way, I notice that you, like many other Amazon enthusiasts, refuse to address Amazonium Codexorum.

    Before you worry about licensing, why not give provide an answer to my simple questions?

    Rick Chapman

  15. And let me remind you of YOUR statement below:

    +++ Here’s the reverse of your question, why should the publisher, most of whom have very little if any knowledge or experience with retail pricing direct to consumers, get to dictate to a retailer at what prices to sell? +++

    And again, if it’s AMAZON’S store, well, then it’s MY (and the publisher’s) books. Why should Amazon, with no knowledge of the specialized markets some of my books address, get to dicatate at what prices they purchase? They apparently think it’s very unfair of them to BUY at other people’s prices, but quite fair to control how I price on their download service.

    Which seems to me to be rather hypocritical.

    And I still want to know more about Amazonium Codexorum.

    Rick Chapman

  16. +++ You’ve been pretty confrontational from the beginning, but this in particular is not acceptable. Puzzled might not be using a real name but it is a consistent pseudonym which is fine by me. +++

    I have been completely factual in my statements. Facts aren’t confrontational, fact are. And facts and dispassionate analysis are always acceptable. Dan, on the other hand, has made repeated misstatements of fact. I believe he has read too many times on too many sites assertions about Amazon that are misleading and untrue. These include:

    * Amazon pays royalties. Amazon pays no one royalties except with the exception noted. Amazon should immediately stop making that claim and accurately describe what it’s charging you. A “retail usage fee.” A “download fee.” I’ll let them define it. But it’s not a royalty.

    * Amazon complains about agency pricing but imposes a modified version of it on indie publishers. Their margin is locked in a la agency; you have very limited pricing flexibility as I’ve noted. Accurately. And not every author is writing a book about the Zombie Apocalypse. Or Vampire Love. Or Dating Werewolves.

    * Amazon is attempting to create a pricing codex. It says so on its website. I note that no one here will address that truly remarkable statement. If you would like to, I would like to hear your speculations on how the codex will be created, maintained, and enforced.

    * Amazon buys MOST of its E-books via wholesale, not agency. Amazon wants to stop agency pricing because it want to gain control over the E-book pricing structure. I neither condemn nor approve them. This is business. But their pricing box is part of that strategy. Again, I describe the motivation of both sides on my blog.

    * Amazon’s pricing box HURTS indies. I’m not going to break it down in detail here; I’ll do that on my own blog. But you don’t have to be a marketing genius to figure out what’s wrong with a seven dollar pricing box.

    * The big publishers DO NOT have to live in that pricing box. Only indies do.

    * 30% points to use a downloading service is a very steep price to pay. Amazon’s NET margins on indie sales is close to 30 points because E-book publishing and distribution are electronic. No warehousing and shipping. Now, of course, you are free to not use their service. But it is accurate to note that 30 point margins are incredibly wonderful in most channels, never mind book channels. 65 point margins are beyond awesome but for an indie, ruinous.

    Fortunately for the publishers, none of them are paying 65 point margins. Only indies face it. How nice for us.

    Amazon’s pricing strategies undercut the entire theme of your article. Let’s say you do want to write a piece of “literature” or perhaps a specialized history on a topic most people find obscure. That means you have a far more limited audience that someone writing about Vampire Love. Or Dating Werewolves. Or Bondage with Billionaires.

    Yet, the time and effort to produce that work will be as great, if not far greater, than that required to do your research on the best way to flog a besotted masochist.

    And then you are stuck in Amazon’s pricing box trying to sell a book that can’t pay back your time and effort at $9.99. The audience isn’t big enough to make up in volume what you’ve lost in revenue. And, of course, since you are an indie, you’re going to have pay for ALL the expenses incurred by having to market and sell your book. And you will have 30 points less revenue to do it because you will be paying that money over to Amazon right up front (and don’t forget the transmission fees, which you also pay).

    Indies in these markets are driven, by necessity, back to the major publishers who may be able to price your product at a level you hope will make your time and effort somewhat profitable. And relieve you of the cost of marketing. Because they don’t live in the box.

    Or, maybe, they can apply to be a member of Amazonium Codexorum. If they can demonstrate the “legitimate” reasons to be on the approved list.

    Sheesh.

    And, if you like people who hide their identities, that’s fine by me. I don’t. I regard them as snarks and usually trolls. I don’t care to communicate with them but if you want to, that’s OK by me as well. Why even bring this up? I didn’t ask anyone to police him/her. I simply stated my opinion of that type of behavior to the person directly.

    And that’s all I have to say about the topic here. I’ll follow up some of the points made here on my own site. Which I am sure will be a great relief to some. Others will be pondering the factual points I’ve made.

    Rick Chapman

  17. AltheGreatandPowerful // 18 October, 2014 at 11:38 pm // Reply

    Yes, scurry off to your bridge, you special snowflake troll.

    You’re bitching that the Zon is robbing you because you can’t charge more… well MAN UP, snowflake, and sell it yourself for whatever you like…

    For that matter, what possible reason is there to charge more than 9.99 for a book about SaaS? Because all the cool kids do? Because it took you a long time and it was hard? Not good enough. I’ll pay exorbitant prices for references that MATTER, but you picked a subject that isn’t worth what you charge.

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